Australian property market - scary??

According to Harry Dent, the Australian property market 'could' halve in value - at least in overpriced areas like Sydney just like California because of the European debt crisis.

"In Sydney, the average house price is over nine times the average income, which is clearly unsustainable, Dent argues".

There are several problems with this story:

1. The probable correlation between a book sale and 'impending doom'....but I have not looked because I'm just cynical and its not a causal relationship anyway. You'd have to look at his arguments. Its possible that he's just ignorant.

2. Australia is in far better conditions than the United States

Australian debt is mostly private sector debt and its mostly underwritten by tangible assets - houses in areas where people want to live, and in a country which a great many people wish they could live. It is also a regulated property market, with government regulating land releases. The government is thus able to regulate prices by turning on the tap at two places - immigration or restriction of land supply. In contrast, Americans can move from a high demand centre like California to a low demand area like the fringes of Seattle or Sacramento and still keep a job. In Australia, you'd have to live 300km from Sydney to get cheap housing, i.e. Dunedoo or Taree. Yes, its extortion, but no one thinks of it like that.

The other big consideration is national income. Australia is well-positioned to supply commodities to the tiger nations of Asia, who are still growing at 5-10% per annum. We need to acknowledge that whilst the USA and Western nations are struggling, the developing world is undergoing an industrial revolution running at a faster pace than the one in the 1700s. The reason is clear - the absence or indifference to ineffectual regulation, and the impact of technology and structurally created cheap labour after decades of coercive statist government in this region. Look at Japan in the 1950s to 1970s; well China and India make a 20x bigger difference. US spending stimulated China; but rest assured that after an adjustment of say 5-7 years China will be making up for the foibles in the USA. Australia and Russia are in the best position to supply materials - relatively better than Brazil, Canada and South Africa. There are plans for mineral & energy investment in Australia of $750 billion - investments which could effectively double annual GDP. This is not going to occur overnight, but even if it takes 20 years, the capital inflows from China and elsewhere will be huge in itself, and for the 20mil people, it means more extortion. i.e. Immigrants will be ripped off as they pay full price for property. Except that will not care because they will have a job, and spare cash to send home to relatives in Asia.

This all means of course that Australia will have strong capital inflows and a strong dollar. Even if commodity prices or volumes come under some pressure, we need to appreciate that the Australian dollar will adjust accordingly. This market is secure. I think you can expect that governments will attempt to keep property prices stable, i.e. Expect property prices to move sideways for the next 10 years, or near so. With the Sydney market affordability index around 10x earnings - it is not going to fall, but with interest rates at low levels, I would not be expecting it to rise given the high levels of indebtedness and the return to conservative borrowing practices. This conservatism reflects foreign market factors rather than Australian considerations.

If you are considering buying a house in Australia; think again. You are buying into a political system based on extortion. If you do so, you simply need to find a rural town which is depopulating but finding work might be the greater concern. Try Taree, NSW or some of the wealthier rural towns based on cotton and beef. If you like beaches, try Grafton, maybe Kempsey (famous for its prison). Failing that; try NZ after renting for 5-10 years in Australia. In a decade, NZ will probably discover oil, and it will be as wealthy as Australia in relative terms. Of well, they live in hope, and its about as much as you can expect as well given the tyranny of majoritism.

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Andrew Sheldon www.sheldonthinks.com

Sydney - the best place in Australia?

Reading this story I am inclined to agree with the author. Sydney would have to be one of the best places to live in the world....if not the best. I must say though there are a few issues I thought he missed:

1. Intellectual pursuits - Sydney offers philosophy groups which hang out in pubs and bars, so you can always have an interesting chat. This is not of course the typical way of spending an everything, but for some, they will be pleased with the opportunity. There are of course political parties you can join, but I found those non-participatory, i.e. Basically it matters little what you say, these people are not interested and offer no logical process of review/analysis.

2. Physical attributes - Sydney has one of the best locations in terms of physical assets, i.e. The harbour is actually three harbours/river systems all in one basin. It means you were unlucky not to grow up without a beach/harbour view. Great mountain (really valley) vistas are not far away, i.e. Blue Mountains and Fitzroy Falls

3. National parks - Sydney is surrounded by national parks. The Royal National Park, in the south, is the world's 2nd national park (after Yellowstone NP), and it is viewable as you fly into Sydbney. The Qantas pilots like to show it off. The Blue Mountains national park to the West is spectacular, along with Jenolan Caves. There are also national parks in the NW and north, as well as the city centre. Yes, the Sydney Harbour National Park protects fauna and flora in the city centre, i.e. Along the harbour and coastal foreshores and harbour islands. If you have the good fortune to live in the city, great if you are close to harbour, river or coastal walks.

4. Climate - Sydney has a very nice climate. Unlike Brisbane its not too hot in Sydney. In the last 20 years, its hardly ever gone above 32degC, and in winter it does not get below 5-8degC, depending on which part of the city you live in. If you live in the West you might get to 2degC. The rainfall is great at 1280mm, just enough to keep the city green, and its not intrusive into your lifestyle. The city experiences a range of climatic conditions, i.e. It is silent rain, or eventful storms...not boring depressing, overcast like Japan. Most days are cloudless, deep blue sky. When I stay in Sydney, there is just 1-2 months when I am not wearing a T-shirt.

5. The space - I love the 'space' of Australia. The ease with which you can get away from people. The lack of traffic congestion. Admittedly, I have not been living in Sydney much for the last few years.

6. The sounds and smells - You will think we weird - but I love the sounds and smells of Sydney, or Australia. The Sydney Blue Gum is a magnificent tree. These trees in windy weather produce a 'rustling' sound which is very peaceful. The same can be said of the sound of wave action on Sydney beaches. The wildness of that Pacific surf is unmatched...not in NZ or Japan. The smells are also special, as well as the sounds of the wild bird life.

7. Safety - Sydney is a pretty safe place. There are some youth gangs in certain parts of the city, but its otherwise a pretty safe place away from certain precincts. I feel it is more dangerous in NZ than Australia.

The bad news about Sydney, and indeed Australia, is:

1. The fascist government. No worse perhaps than the US government, but certainly little better. Perhaps Australians are just enjoying themselves too much to care. For me, its a deal breaker. I'd prefer to live in another country than finance political tyranny.

2. Poisonous snakes, spiders. The good news is that little else will kill you and snakes find you coming. If you don't pick up ground objects you will probably avoid spiders. But there is a certain appeal to NZ, which has none of these issues. Except politicians of course.

3. The sun - Australia's sun is very strong. The good news is that if you are in the shade its very pleasant because its very dry air. The direct sun is very strong, so take care in summer.

4. Remote - It will be argued by some that Australia is remote from other places. Sydney is close to New Zealand, which ranks highly as a place to live as well, or to holiday, and the two countries have a Closer Economic Relationship (CER) which makes integration easy. Sydney is 9 hours flight from Tokyo. But who's want to leave.

5. Sydney is expensive. The government strictly regulates land subdivision, so the cost of land is very high, and there are a lot of international investors buying in Sydney, because it is a nice place to live. Many Australians abroad buy in Australia with the intent of eventually retiring here...as do many foreigners like Chinese, Koreans and Japanese.

You do not necessarily have to live right in Sydney to enjoy these benefits.

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Andrew Sheldon www.sheldonthinks.com